How Does the COVID-19 Impact the Cryptocurrency?

Abstract

This paper aims to investigate the interaction between the Covid-19 pandemic and the prices of two representative cryptocurrencies. We analyze the conditional variance of the log rate of return for these two cryptocurrencies using the ARMAX-GARCH model and the interaction between the pandemic severity and the log rate of returns using VARbased impulse responses analysis. Our finding pointed out that the pandemic has a significant positive impact on the cryptocurrencies' prices in the short run, making the cryptocurrency market a good investment to hedge the pandemicimplanted risks in the conventional financial market.